Advice for a tenant breaking a two year lease

[Marshall White]

Hey everyone! 

I'm new to BP and wanted to get opinions from other landlords or PM's that have dealt with this type of situation. 

I have a tenant who signed a 2 year lease in March 2019. They just informed me that they need to move back to another city (an hour away) for work purposes and are strongly considering breaking their lease. The lease does not have an early termination clause and the remaining amount of the lease owed is over $50K. I would like to work out an alternative option that works for both the tenant and myself but I am not sure of the best course of action to take. 

My partner and I are considering having them pay the rent until a new tenant is placed and keeping their security deposit. We are always very flexible with our tenants and understanding of issues that may arise in their lives. In some cases, we are more lenient than we probably should be so we want to ensure we are providing an option that is fair to us as well as them.  

We are speaking with our real estate attorney tomorrow to get the legal perspective for this. 

I'd love to hear about other people's experiences on similar situations or any suggested alternatives on how to resolve this. Any insight is greatly appreciated! Thank you!

[Nathan Gesner]

Many tenant will offer to sign a two-year lease just to beat out other applicants, knowing full well they won't stay the full term. I stopped accepting leases beyond one year because I discovered the majority of tenants break them.

There is nothing "unethical" or "mean" about charging a penalty. The tenants willingly entered into a two-year lease and are legally obligated to fulfill it. Letting them out early is your nice but you should be compensated for your loss. 

Here's my process:

Tenant requests to break lease early. If they have more than six months remaining on their lease, I tell them they can pay me an early termination fee equal to two months rent, stay responsible for rent and utilities for a full 30 days (whether they occupy or not), and allow me to market the unit and show it to prospective renters. If they have less than six months, they pay a penalty of one month. The fee is due when they give 30 days notice, not when they move out, and it cannot be taken from the deposit. 

If they refuse to pay the penalty, I hold them to the original terms of the agreement. Let's say they refuse to pay the penalty and move out June 1st. I start marketing the property as soon as I verify they are out. I do my move-out inspection, clean and repair, and then wait. If I find a tenant in 15 days, I use the deposit to cover the turnover costs and the unpaid rent up until the new tenant takes over. If it takes me three months to find a new tenant, I hold the original tenant responsible for three months of rent.

In my experience, about 80% of my tenants choose to pay the fee because they don't want the risk of additional costs and they want a good Landlord reference.

In my experience, almost 100% of those units are rented quickly and the penalty fee is extra income.